I was beginning to think I was the only one that liked taxes, but then I saw Anthony’s post. People who talk about the evils of taxes make, I think, two mistakes:
First, they forget that certain kinds of goods can only be (practically) delivered by the government. Without taxes, our public infrastructure would be nonexistent, which I think even the most libertarian among us would not prefer. Our taxes naturally have to adjust to fit the public needs of our State; otherwise, everyone’s need for public goods will go unsatisfied.
Second, they assume that government spending is by definition inefficient. Admittedly, I’m no economist, but I can certainly speak to my own spending – it’s bloody inefficient. And I think I am not being overpresumptuous in thinking that I’m hardly alone in that. Free markets are good, but not perfect, at allocating resources under certain circumstances. That’s all. Ultimately, the choice whether or not to tax should be made on pragmatic, and not ideological grounds.
I’ve discussed why I think the inefficiency argument is silly. I haven’t explained why I think taxes are fair. Even a flat tax costs the rich much more than the poor, and a progressive tax costs the rich a great deal more than the poor. Why is this fair?
One response is something that Mr. Obama, in fact, offered to Joe the Plumber (the original): if you start out poor and end up rich, it’s the progressive income tax that made that happen; in effect, the tax redistributed wealth from your rich future to your poor present, which in fact enabled your rich future. Lowering tax rates on the rich would be, in effect, pulling up the ladder behind you.
A second is that, in general, wealthier individuals derive more value per dollar of wealth than poorer individuals. This is because the investments of the wealthy are multifarious, because the transactions of the wealthy are complex, because the interests of the wealthy are many – as a result, the various services of the government that ensure all of the transactions and investments add much more value to the rich than the poor.
A third is that, of course, the marginal utility of money to the wealthy is much smaller; as a fraction of their, uh, total utility (is there an economics term for this?), they’re paying as much or less than poor people.
December 10, 2008 at 5:23 am
“Even a flat tax costs the rich much more than the poor, and a progressive tax costs the rich a great deal more than the poor. Why is this fair?…A third is that, of course, the marginal utility of money to the wealthy is much smaller; as a fraction of their, uh, total utility”
I think this last argument of yours is the perhaps the most convincing, or, potentially convincing tot he most people, but I don’t know that youve put it in a way that the peopl who need to be convinced will be convinced by it.
Puttng it in concrete terms might help.
If you have a flat tax, of say, 20 percent, then the guy making 100 dollars a week sees 20 of those dollars go away in taxes, and has to scrape by on 80 dollars a week. To somebody making 80 dollars a week, 20 dollars is a lot of money. Someone making 1000 dollars a week is going to see 200 of that disappear into taxes, and have to scrape by on 800 dollars a week. To be sure, he’d like to have that 200 dollars, but there is no way that he’s going to miss that 200 dollars as much as the guy making 100 dollars a week misses his 20 dollars. The proportion of your pie taken by taxes with a flat tax is the same for everyone,, but when your pie is very small, every sliver counts, while when your pie is too big for you to really eat it all to begin with, you don’t miss a taken slice nearly as much.
The economic hardship felt by those paying a flat tax is not proportional to income, even though the taxes paid are. As the amount of money you make goes up, relative to the minimum it takes to feed and house yourself, the amount of pain you feel from taking the same proportion of money away goes down. This is, of course what you meant, I think, by, “the marginal utility of money to the wealthy is much smaller; as a fraction of their, uh, total utility…”
But people need it spelled out for them. They slept through high school economics, and that was a lifetime ago anyway for many, and their highschool economics teacher was likely as not a Reagan era Laffer curve, supply side goofball anyway.
December 10, 2008 at 5:26 am
BTW, the “snow” effect is incredibly annoying and nearly destroys the ability to enter comments on your blog, and is a perfect example of really shoddy programming by the wordpress.com team.
December 10, 2008 at 3:01 pm
I see somebody has already taken care of it, but FINE I thought the snow was FESTIVE. It was only going to be around for a month anyway. oh well
December 10, 2008 at 3:51 pm
Maybe we can put some holiday stuff at the top of the page to be festive.
December 10, 2008 at 4:44 pm
Ani, a long time ago you had floated the idea of abolishing income tax and replacing it with a 20% federal sales tax. This way people would be taxed based on how much they consumed, rather than how much they produced. How do you feel about that plan now?
December 10, 2008 at 5:13 pm
A long time ago I think I was stupid. A flat sales tax is a terrible idea, I think, both because it’s regressive and because it’d be very hard to implement. Really, I think you’d need a Value Added Tax in order to reduce incentives for tax evasion, and I have the suspicion that a VAT would fly even less than a federal sales tax.
December 12, 2008 at 2:52 pm
[...] Geddes commented on a Fair Tax system. Factcheck.org thoroughly debunked Presidential candidate Mike Huckabee’s insistence that a Fair Tax system would work. People paying $15,000 – $200,000 would pay more in taxes while those earning more than $200,000 would pay less. Essentially, consumption taxes and payroll taxes punish the poor. Possibly related posts: (automatically generated)100 Bottles of Beer on the Wall…Another Look at the Fair TaxGrand Theft…Doyle Style [...]
December 14, 2008 at 1:09 pm
[...] tax, Taxes | Ani made a comment in his post which I think is particularly interesting. “Without taxes, our public infrastructure would be nonexistent, which I think even the most li… I do not think any but the most extreme positions would suggest to do away entirely with taxes of [...]